Libya’s UN-recognised government budgeted up to two billion dinars ($1.43 billion) to cover costs of a three-week-old war for control of the capital to be funded without new borrowing, the economy minister said.
Ali Abdulaziz Issawi suggested government hoped for business to continue more or less as usual despite the assault on Tripoli by forces tied to a parallel administration based in Benghazi.
Once Africa’s third largest producer of oil, Libya is now broadly split between eastern-based forces under Khalifa Haftar and the UN-backed government in Tripoli under Prime Minister Fayez al-Serraj.
With Haftar’s Libyan National Army forces unable yet to pierce defences in Tripoli’s southern suburbs, normal life and business activities continue in much of the capital and western coastal towns.
Issawi, in an interview with Reuters in his Tripoli office, said Libya’s commercial ports and wheat imports were functioning normally, although some roads have been blocked.
He said the Serraj government estimates it will spend up to two billion dinar extra on medical treatment for wounded, aid for displaced people and other “emergency” war costs.
He said this was not military spending but analysts believe the sum will cover expenses such as pay for allied armed groups and food for fighters.
“We could spend less,” he added, in comments giving an insight into the economic impact of fighting.
Issawi said the Tripoli government, which controls little territory beyond the greater capital region, would not incur new debt to fund war costs, sticking to a plan to post a 2019 budget without a deficit.
Tripoli derives revenue largely from oil and natural gas production, interest-free loans from local banks to the central bank, and a 183% surcharge on foreign exchange transactions conducted at official rates.
With centralised tax collection greatly diminished, public debt piled up – to 68 billion dinars in the west, including unpaid state obligations such as social insurance.
Some analysts expect Serraj’s government will be forced to raise new debt if the war drags on.
With much of Libya dominated by armed factions that also act as security forces the public wage bill for both the western and eastern administrations soared as fighters become public employees in efforts to buy loyalty.
The east sold bonds worth 35 billion dinars outside the official financial system as the Tripoli central bank does not fund the parallel government apart from some wages.
Despite its limited reach, the Tripoli government runs an annual budget of around 46.8 billion dinars, mainly for public salaries and fuel subsidies.
“This year we cannot finance via debt…we will not borrow by agreement with the central bank,” Issawi said.
According to International Monetary Fund data, Libya’s central government debt-to-GDP ratio is 143%, making it one of the most heavily indebted in the world.
Issawi declined to say where the budget would be trimmed to support the extra outlay.
With some 70% of the budget allocated to public wages, fuel subsidies and welfare benefits, a portion for infrastructure is most likely to be axed.
Widespread lawlessness means there have been no major infrastructural projects since 2011.
Issawi said government planned to raise up to 30 billion dinars by the end of 2019 from hard currency deals after imposing a 18% surcharge on commercial and private transactions done ar the official rate of 1.4 to the US dollar last September. That fee effectively devalued the official rate to 3.9, far closer to the black market equivalent.
Some 17 billion dinars have been raised since then, with hard currency allocated for import credit letters now issued without delays, Issawi said. The forex fee helped government forecast a budget in the black for 2019.
Despite the narrowing spread between rates, the black market continues to thrive. Dozens of traders remained behind the central bank headquarters in Tripoli when Reuters reporters visited.
Traders said it could take time for the Serraj government to register extra forex receipts as official banking channels took up to six months to approve import financing, keeping the black market in play for dealers.
Issawi said authorities planned to lower the forex fee from 183%, without saying when. The black market rate has dropped from six to around 4.1 since September but hardly moved as demand for black market cash remains high.
The Tripoli government stopped subsidising food and bread, which used to be cheaper than drinking water in Libya. Wheat imports are now arranged by private traders and there are surplus stocks of flour at present, Issawi said.